December 08, 2003
Mr. Takeshi Kato
Transportation Systems & Equipment
Sumitomo Corporation of America
600 Third Avenue
New York, New York 10016-2001
Dear Mr. Kato:
This responds to your letter dated September 23, 2003, requesting a non-availability waiver of the Buy America requirements for the main transformers that would be used in the propulsion system of railcars manufactured by Sumitomo, if Sumitomo is awarded the Southeastern Pennsylvania Transportation Authority (SEPTA) contract for 104 rail cars.
The Federal Transit Administration’s (FTA) requirements concerning domestic preference for federally funded transit projects are set forth in 49 U.S.C. 5323(j). Section 5323(j)(2)(C) addresses the general requirements for the procurement of rolling stock. This section provides that all rolling stock procured with FTA funds must have a domestic content of at least 60 percent and must undergo final assembly in the U.S.
These requirements may be waived under 49 U.S.C. 5323(j)(2)(B), which allows waiver for non-availability. The non-availability waiver provides that the Buy America requirements shall not apply if the item or items being procured are not produced in the United States in sufficient and reasonably available quantities or are not of a satisfactory quality. See 49 C.F.R. 661.7(c). The regulation provides that non-availability waivers may be granted for a component of rolling stock and if granted, that component will be considered to be of domestic origin when calculating domestic content. 49 C.F.R. 661.7(f).
Arguments Made in Support of a Waiver
SEPTA issued a Request for Proposals for 104 rail cars that will operate on a 11.5v/25hz overhead centenary power source. Sumitomo proposes to use a propulsion system manufactured by Toshiba and Toshiba advises that the main transformers in this system are not manufactured in the U.S. You explain that you pursued multiple sources in an effort to find a compatible domestic transformer and were unsuccessful: General Electric, Alstom, Siemens, Dynapower Corporation, ABB Secheron, Electrical Design Technology, Niagara Transformer Corporation, and Virginia Transformer Corporation. Accordingly, as you were unable to find this transformer from a domestic source, you seek a waiver in the event that you are awarded the contract.
Summary of Comments
FTA posted a request for comments on this matter on our website and received 15 comments, six in support (one of which was submitted more than two weeks after the comment period closed), five against, and five which are ambiguous or conditional.
Those in support of the waiver did not submit extensive commentary: Trillium USA, a fleet supervisor at Bullhead Area Transit System, Hoppecke Batteries, and Washington Group International, commented that they support the waiver. Penn Machine said that if Sumitomo can provide details of their effort to locate a custom manufacturer in the U.S. without success, then a waiver should be granted. Matrix Railway generally supported the ability to use foreign suppliers, because, the commenter believes, foreign suppliers offer better quality.
A range of arguments were made against issuing the waiver. IndyGo Transit generally argued that such a waiver would “fly in the face of efforts to support U.S. Commerce.” TTA Group argued that Buy America can be satisfied without the waiver. And an individual commenter noted that unless the waiver was offered to all other qualified offerors, it is not fair. Ross and White argued that the waiver should be denied, and further, that rolling stock should be produced, manufactured, and assembled in the U.S. And finally, Colorado Rail Car commented that it appeared that the request was driven by the need to meet the requirements of a Toshiba drive system.
One of the conditional commenters noted that if Sumitomo has exhausted all possibilities in meeting the domestic content with all components and still cannot meet the requirements, then a waiver is in the best interest of the public and SEPTA, but noted that this is unlikely.
After a review of this record, I do not believe a waiver is warranted here. Sumitomo has elected to use a system with a foreign component, as permitted by law. This transformer itself is not part of the specifications on this contract, nor is the propulsion system that only works with this foreign transformer. Sumitomo informs us that this item makes up between three and five percent of the component content of the vehicle.
Congress allowed up to 40 percent foreign component content in rolling stock. There is not a need, on top of the allowance for foreign content, to grant a waiver for an item that makes up such a small percentage and is not specified by the contract.
If you have any questions, please contact Meghan G. Ludtke at 202-366-1936.
Very truly yours,
Gregory B. McBride
Deputy Chief Counsel
cc: Nancy Green, Regional Counsel
John Holak, Senior Director of Procurement, SEPTA